India and Mauritius Examine DTAA Amendments

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Mar. 18 – India and Mauritius have been getting closer to agreeing on amendments to their 30-year-old double taxation avoidance agreement (DTAA). Alarmed that the bulk of foreign investment into India the past few years has come from the tiny nation, the Indian government has been taking steps to prevent the practice of round-tripping by India’s own businessmen who are attempting to avoid capital gains taxes by having assets held in Mauritius. As a consequence, businesses registered in Mauritius for Indian inspection purposes have been required to demonstrate a ‘legitimate’ operational presence in the country and not just a shelf company.

Negotiations with the Mauritian government over amending the DTAA have reached the third round, with Indian President Pranab Mukherjee just returning from a State visit at which amendments were discussed. India has also agreed to provide US$100 million in credit lines to Mauritius with that set to be increased to US$250million. Admitting that there were some ‘diverging’ issues concerning the DTAA, it nonetheless appears that with India extending financial considerations to the nation, the three decade window for Indian businesses to claim offshore ownership and round trip through Mauritian holdings to avid Indian tax may still be drawing to a close.

“Our firm wrote the Chinese translation of Mauritian offshore company law and documentation for the Mauritian Government many years ago,” comments Chris Devonshire-Ellis of Dezan Shira & Associates. “With India now getting more serious about better controlling its tax base, the days of Mauritian round tripping from India seem to reaching its sunset. We expect Singapore as an offshore destination to pick up much of the Indian legitimate business needs under the Singapore-India DTA, which has the added benefit of allowing Indian companies free trade access into ASEAN, something Mauritius is unable to provide. We see Mauritius future as being better aligned with that of using its DTA with businesses located in East Africa and the Middle East.”